Trial Free Trial APLN WEBT097A 68037 0 Financial Accounting Resource Center The Financial Accounting Resource...
By Denise Lugo
March 13 –– Companies applying the Financial Accounting Standards Board's recently issued consolidation accounting rules will have to revisit their entire process of evaluating the consolidation of special purpose entities, a PricewaterhouseCoopers practitioner told Bloomberg BNA March 12.
“The model has changed the way the evaluation needs to take place, so any company that uses structured arrangements, special purpose vehicles in a large way, will absolutely have to invest time going through the new evaluation,” said John Bishop, a leader in PricewaterhouseCoopers's national office.
“Whether the end results are going to be markedly different, that is still unclear,” he said.
Practitioners have said, however, that the biggest impact is expected for limited partnerships because more of them will be considered variable interest entities (VIEs) under the new rules.
Bishop agrees, stating that any company that has financial relationships with limited partnerships need to be very alert. “At the margin, at a minimum, required disclosures will go up,” he said.
Just because an entity is characterized as a variable interest entity, however, doesn't mean that the ultimate consolidation conclusion will necessarily change, said Bishop.
There are a lot of steps to reach the consolidation conclusion, and therefore it isn't clear yet whether the ultimate answer is going to change, though the analysis will change and disclosures will increase, he said.
The guidance, ASU No. 2015-02, Consolidation (Topic ASC 810): Amendments to the Consolidation Analysis, was issued Feb. 18 (11 APPR 208, 2/27/15) and reduces the consolidation models from four to two. It's effective for periods beginning after Dec. 15, 2016 for public companies. Earlier adoption is permitted.
In two webcasts March 10, other PWC practitioners highlighted accounting approaches for financial services, commercial and industrial services type companies.
In general, the two remaining consolidation models have fundamentally changed—in many respects—how the analysis should be approached, practitioners said. Therefore, the start-up work in applying the guidance is going to be challenging, they said.
The rules are especially significant for companies that organize their corporate activity using legal vehicles such as limited partnerships or limited liability corporations.
Some companies use those vehicles because of the tax advantages they can provide.
The first thing chief financial officers should consider under the new rules is to evaluate whether entities are corporate entities or limited partnership entities, said Bishop.
For the corporate entities, there is a different way of evaluating whether the corporate shareholders in fact have control over the company. Where the rules will have the biggest impact is in the sectors that commonly outsource through contractual arrangements, he said.
Outsourcing examples include:
• the hotel industry that hires professional management;
• the shipping industry that may hire professional crews to make all the decisions on operation and running ships; and
• the energy sector.
To contact the reporter on this story: Denise Lugo in New York, at email@example.com
To contact the editor responsible for this story: Steven Marcy at firstname.lastname@example.org
For a copy of the consolidation ASU go to: http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156316498
For a general discussion of business combinations, see 5174, VIE Consolidation Model: Identifying Variable Interests and Entities Considered VIEs, at 5174.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)